Social Media Will Beat Mobile Phone Operators

Mobile networks are facing a “data crunch” as demand continues to increase. While the operators focus on improving the technology to sort mobile broadband, their role is being usurped by the social media that are carried over their networks.

Mobile operators are struggling to deliver mobile data, with demand growing at a compound annual rate of 42 percent, but still price it very cheaply, in order to gain or keep their share of the mobile market. Some network crashes have been blamed on overload caused by smartphone users.

The situation is currently unsustainable, but how should operators react: with new technology to deliver more bandwidth, or new business models to serve the demand and get sustainable revenues?

While the operators struggle with the problem, ecosystems like Google and Facebook are making off with the users’ attention, and will ultimately get the money from them, whether through mobile advertising or some sort of value-added on top of the data pipe their services use.

The issues came up in a round table, delivered as a taster for next month’s Future of Wireless conference in Cambridge on “Networks Under Stress”.

Data growth hits real economics

The context is extreme. Mobile data is expected to grow nearly 30x in a short time, and most seem to expect this to happen at no extra cost. That is “untenably stupid,” according to Professor William Webb, a former strategist and R&D leader at Ofcom, now CTO at machine-to-machine wireless startup Neul. “In most industries an explosion of demand is good, because the price goes up.”

There is a lot of emotion around mobile data pricing, as many see it as something which essentially “should” be free, or available at very low cost, as a matter of human rights or international competition.

Of course, if mobile data were outside normal economics for this reason, this would ultimately be an argument for government subsidy, rather than for operators to do the impossible. But the meeting considered how bandwidth might be increased.

There are three ways to do this, Webb said. Firstly, spectrum can be used more efficiently, for instance by allowing 3G and 4G services to be run on spectrum previously allocated for 2G. This might perhaps double the amount of bandwidth available.

Secondly, spectrum which isn’t used, or is used by obsolete services, can be released. This re-farming spectrum is most publicly seen in Ofcom’s auction of spectrum for 4G services. Again, though, this might double the amount of bandwidth.

The third option is simply to shrink the size of the cells on the network, so each one is shared by fewer people, and the data is carried onto the wired network. The potential here is perhaps unlimited, especially if one allows the micro-cells in this scheme to be 3G/4G femtocells, or Wi-Fi hotspots.  If operators double their efficiency, and double their spectrum, they will still need eight times as many cells to meet the level of demand envisaged, said Webb.

All those moves cost money, of course, and Webb said this is what will bring sanity back into the picture. “Since operators are generally not philanthropists their data charges must grow to meet these costs,” said Webb. “Increased costs will dampen demand and equilibrium will prevail. There will be no more data crunch problems.”

Before that can happen, operators need to accept the necessity, and, Webb said, “none of the operators wants to blink first.”

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